How will GST Impact Procurement and Accounts Payable in India

India’s Goods and Services Tax (GST) has a transformative potential in the procurement and accounts payable (AP) landscape in the country. Since its implementation, the GST has introduced several reformulations that streamline processes and reduce costs. Let's delve into how these changes are impacting procurement and AP operations in India.

Interstate Movement of Goods: A Simplified Logistics Process

One of the most significant impacts of GST on procurement is the ease with which goods can now move across state borders. Under the old indirect tax system, goods crossing state lines faced multiple hurdles which included long queues for clearance and paperwork. These challenges not only increased transportation costs but also added unnecessary delays to the supply chain. With GST, the comprehensive tax framework has facilitated a unified clearance process, and there is no need for trucks to queue for long periods. This results in more streamlined logistics and reduced expenses for suppliers and distributors.

Reduction of Cascading Effect and Cost Optimization

Before GST, the Indian tax environment was riddled with multiple taxes such as VAT and Excise, leading to a complex and cumbersome cascading effect. The cascading effect occurs when a tax is levied on goods that already include other taxes, causing the final price of the goods to be significantly higher. With GST, the cascading effect is mitigated, as it ensures that taxes are levied only once on the goods at the producer level. Consequently, the cost of goods for businesses has seen a reduction, which is highly beneficial for both suppliers and consumers.

Support for Small and Medium Enterprises (SMEs)

One of the key benefits of GST for Small and Medium Enterprises (SMEs) is the provision of input tax credits. SMEs are now able to claim input tax credits on the entire amount of tax paid. This is a significant relief, as it substantially reduces the tax burden on these enterprises. As a result, the prices of goods and services provided by SMEs are likely to reduce, potentially increasing their competitiveness in the market. The improved financial health of SMEs can lead to more stable supply chains and a more resilient economy.

Restructuring of Supply Chains

The transition to GST requires businesses to reevaluate their supply chain strategies. Under the old tax regime, companies structured their supply chains to optimize for indirect tax impacts, leading to decisions that prioritized tax efficiency over business efficiency. However, with GST, businesses must now focus on reorganizing their supply chains to maximize operational efficiency and reduce costs. This transition may involve changes in logistics, warehousing, and even distribution models. Ultimately, the goal is to achieve a more efficient and cost-effective supply chain that aligns with the goals of the business rather than solely tax optimization.

Conclusion

The implementation of GST has brought significant changes to procurement and accounts payable processes in India. These changes have streamlined logistics, reduced costs, and provided additional financial relief to businesses, particularly SMEs. As businesses continue to adapt to the new tax regime, they must also reassess and potentially restructure their supply chains to optimize for overall business efficiency.

Businesses that take proactive steps to understand and implement these changes can not only improve their operational efficiency but also gain a competitive edge in the market. As such, it is crucial for companies to stay informed about the implications of GST and to work towards a more efficient and transparent procurement and AP strategy.